Citing a conflict with its ESG (Environmental, Social and Governance) Initiatives policy, the Vermont Pension Investment Committee (VPIC) voted unanimously to reject fossil fuel divestment on July 28. Vermont’s state director of investments dismissed divestment as a mere “publicity stunt” in the Burlington Free Press, while VPIC’s chairman told the Vermont Digger, “We were not created as an agent of social change.”
Regular readers of this blog know how deeply we disagree with VPIC’s reasoning, analysis and conclusions. Clean Yield’s Chief Investment Officer, Eric Becker, has testified repeatedly in favor of divestment and did so again on the 28th, accusing the treasurer’s staff of dodging the committee’s May 2015 request for a narrow study on the portfolio’s coal holdings in favor of a meaningless, flawed analysis of divestment from the whole energy sector. “From the start this report is only useful as a straw man for the staff to argue against divestment of any kind,” he told VPIC.
The staff report claims that the foregone return of divesting from energy stocks could be on the order of $9 million annually, based on trailing 10-year historical performance. Eric continued:
I am dismayed that the treasurer’s staff, headed by a CFA charter holder, would issue a report that states in bold type that the foregone return from divesting from energy stocks could be on the order of $9 million annually.
The staff assumes that since removing all energy holdings over the past ten years would have reduced returns by 0.6% per year, the same will be true in the next ten years. This is a terrible no-no in the world of CFAs and fiduciaries. Historical returns can tell you a lot about the past, but little about the future. There’s a very good reason that fund companies are required to state that past performance is not a guarantee of future results. And what they do tell you is generally the opposite of what the staff has concluded. Investment returns tend to revert to the mean.
Eric finished by calling for a truly independent analysis of the impacts of divestment from coal alone, and other fossil fuel companies more broadly.
350 Vermont and the Vermont chapter of the Sierra Club organized a presence both inside and outside the VPIC meeting.
If there is any silver lining to this dark cloud, it is that VPIC’s investment managers’ investment outlooks on the coal industry’s future are now on record. Not one is bullish, and several cited factors that point to coal’s long-term demise.
“Vermont Pension Board Will Not Divest From Fossil Fuels,” Vermont Digger, July 28, 2015
“Fossil Fuels Stay in State Pension Portfolio,” Burlington Free Press, July 29, 2015
“Vermont Pension Investment Committee Considers Divesting, Again,” Vermont Public Radio, July 28, 2015
“Vermonters Demand Coal Divestment, VPIC Maintains Fossil Fuel Investments,” 350 Vermont press release
It’s De Ja Vu All Over Again in the Vermont Divestment Debate (Clean Yield blog post, February 13, 2015.